Ratio analysis of Appu International Ludhiana

8/6/2019 Ratio analysis of Appu International Ludhiana

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LOVELY PROFESSIONAL UNIVERSITY

DEPARTMENT OF MANAGEMENT

Report on Summer Training

Ratio Analysis to know the financial position of Appu international

Ludhiana

Submittedto Lovely Professional University

In partial fulfilment of the

Requirements for the award of Degree of

Master of Business Administration

Submitted by:

Ajay Kumar Gupta

R1011A09

DEPARTMENT OF MANAGEMENT

LOVELY PROFESSIONAL UNIVERSITY

JALANDHAR NEW DELHI GT ROAD

PHAGWARA

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PUNJAB

DECLARATION

I Mr. Ajay Kumar Gupta hereby declare that this project is the record of authentic work carried

out by me during the academic year 2011 2012 and has not been submitted to any other

University or Institute towards the award of any degree.

Signature of Student

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(Ajay Kumar Gupta)

Acknowledgment

I am very much obliged and indebted to Mr. Padam Kumar Aul (Managing Director of AppuInternational Ludhiana) for his approval and valuable suggestions to take up the project.

I also extend my gratitude to Mr. Vikram Jain (Charted Accountant), Commercial and

Administration for his approval and valuable suggestions to take up the project in Appu

International Ludhiana.

I express my deep sense of gratitude to Mr. Shubh Kumar (Accounts Officer Finance),

Commercial and Administration for his valuable suggestions, consistent help and personalinterest during my project work.

I am very pleased to express my deep sense of gratitude to Mr. Pranav Ranjan Associate

professor (Lovely professional University) for his consistent encouragement. I shall forever

cherish my association with his for exuberant encouragement, perennial approachability,

absolute freedom of thought and action I have enjoyed during the course of the project.

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Ch. No. Particular Page No.

1 Executive Summery

2 Introduction Of Appu International Ludhiana

3 Need For Study

4 Objective

5 Research Methodology

6 Introduction of Ratio Analysis

7 Data Collection And Interpretation

8 Finding

9 Suggestion And Conclusion

10 Bibliography

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Chapter 1

Executive Summary

This project is specially designed to understand the subject matter of Financial StatementAnalysis through various ratios in the company. This project gives us information and report

about companys Financial Position. Throughout the project the focus has been on presenting

information and comments in easy and intelligible manner.

The purpose of the training was to have practical experience of working in an organization and

to have exposure to the various management practices in the field of Finance. This training has

also given me an on the job experience of Financial Management.

This project is very useful for those who want to know about company and financial position of

the company.

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Chapter 2

INTRODUCTION OF COMPANY

APPU GROUP was incorporated in the year 1992 to manufacture high quality Bicyclecomponents and a large variety of Expanded sheet metal and Wire components duly coated orplated for its OE customers. From a humble beginning, the company has attained an impressiveturnover of Rs 25Crores and has a dedicated workforce of near about 500 employees.

Under the dynamic leadership of its Managing Director Shri Padam Aul, it has progressed leaps

and bounds to emerge as one of the most trusted name in the Auto components industry, for itsQuality and reliability.

The Group is aware of the vast business potential in Indian Automobile industry and is fastupgrading and expanding its capabilities and infrastructure to join the Auto mainstream to

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increase its market-share. It aspires to become one of the leading global players in this sector. Ithas a highly dedicated and capable development team equipped with CAD/ Pro-E software, a

high precision Tool room and state of the art Standard room facility for shorter developmentLead-time.

ADI MAJESTICSM/s ADI Majestic was set up in December2006 for electroplating of ABS plastic and Zinc diecast components for Automobiles. It has dedicated lines for the above materials. This plant is onethe best world class plants in India and is fully automatic with Fanuc SCADA system installed. Ithas totally dust proof environment with pressurized air system and a highly effective lip exhaustsystem to take care of fumes for a creating a healthy working environment. It has excellentlaboratory and Thermal cycle testing facilities for plated components as per internationalstandards

APPU INTERNATIONALM/s Appu International was the first company of the group set up for manufacturing a vast rangeof cycle components. It is manufacturing bicycle handles, frames, forks, carriers and wirebaskets for OE market and is a leading supplier to many top brands. It has also developed its ownbrand of bicycles which has earned a good brand image now. The manufacturing facilitiesinclude fabrication, brazing, welding, powder coating and plating plant.

APPU EXIM (P) LTD.M/s Appu Exim deals with export of cycles and its components to international markets.It has earned a good brand image overseas.

AULSON TECHNOCRAFTSM/s Aulson Techno craft was set up in the year 2004 for the manufacturing of Auto components.It has facilities for manufacturing of tubular accessories like Engine guard, Dress guard andCarrier assembly for Hero Honda brands of Motorcycles and has very soon established a soundreputation for its quality and reliability in its OE supplies to Hero Group.In the year 2006 it diversified into Aluminium Pressure die- castings by adding precision diecasting capacities and machining facilities. It has already acquired a very good market reputationfor its precision machined Die-cast components and has added some of the highly reputedcustomers to its list

Year of establishment 1992

Nature of business Manufacturer Number of employees 101 to 500 peopleTurn over US $ 1- 10 Million (or Rs. 4-40 Crore Approx)

Warehouse / Production Capacity

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MANUFACTURING SETUP

Pressure die casting machines 80 - 400 Tons capacity Machine shop for die cast components Power presses 5 75 Tons Automatic sheet mesh manufacturing. Swaging machines for steel tubes Brass brazing furnaces for Bicycle components Hydraulic Presses MIG Welding Machines Spot welding and Projection welding machines Electroplating plant for Zinc ad Nickel-Chromium. Phosphating and Painting set up. PVC and Powder Coating Plant. Hydraulic Tube Bending Machines Shearing and nibbling machines

ClienteleCUSTOMERS

TI Chennai Hero Honda Hero Cycles Atlas Cycles Avon Cycles Majestic Auto

Munjal Castings Bharat Engineering Exposition

InfrastructureThe Group infrastructure is spread over an area of 60000 sq. ft. Today the company is meetingthe vast diversified requirements of many major companies in Bicycle and Automobile sectorand many more are in the development list

OUR STRENGTHS A Strong R&D section with CAD/Pro-E facility. A High precision Tool room for faster development. A state of the art Standard Room. A strong and committed development Team. A very high degree of Customer orientation

Quality Policy / ProcessesIt is fast becoming as one of the leading professionally managed groups in Ludhiana. The

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organization has acquired ISO 9001 2000 in the year 2002 for its Quality Systems andManagement practices and now gearing up for TS 16949 shortly.

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Organisational Structure:

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Chapter 3

NEED FOR THE STUDY

1. The study has great significance and provides benefits to various parties whom directly or

indirectly interact with the company.

2. It is beneficial to management of the company by providing crystal clear picture regarding

important aspects like liquidity, leverage, activity and profitability.

3. The study is also beneficial to employees and offers motivation by showing how actively they

are contributing for companys growth.

4. The investors who are interested in investing in the companys shares will also get benefited

by going through the study and can easily take a decision whether to invest or not to invest in the

companys shares.

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Chapter 4

OBJECTIVES

The major objectives of the resent study are to know about financial strengths and weakness of

Appu International through FINANCIAL RATIO ANALYSIS.

The main objectives of resent study aimed as:

To evaluate the performance of the company by using ratios as a yardstick to measure the

efficiency of the company.

To understand the liquidity, profitability and efficiency positions of the company during the

study period.

To evaluate and analyze various facts of the financial performance of the company. To make

comparisons between the ratios during different periods.

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Chapter 5

METHODOLOGY

The information is collected through secondary sources during the project. That information wasutilized for calculating performance evaluation and based on that, interpretations were made.

Sources of secondary data:

1. Most of the calculations are made on the financial statements of the company provided

statements.

2. Referring standard texts and referred books collected some of the information regarding

theoretical aspects.

3. Method- to assess the performance of the company method of observation of the work in

finance department in followed.

Literature reviews:

1- This study develops and empirically tests a number of methods of analyzing financial

ratios to predict small business failure. Although not all of the methods and ratios are

predictors of failure, many ratio variables are found which do predict failure of Small

Business Administration borrowers and guarantee recipients. Using step-wise multiple

discriminate analysis with a restriction on the simple correlation of the entering variable

with the included variables, a function of independent ratio variables, which is highly

accurate in classifying borrowers in the test sample, is developed.

2- Although they surfaced as a gusher rather than a trickle, the problems that brought the

W.T. Grant Company into bankruptcy and, ultimately, liquidation, did not develop

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overnight. Whereas traditional ratio analysis of Grant's financial statements would not

have revealed the existence of many of the company's problems until 1970 or 1971,

careful analysis of the company's cash flows would have revealed impending doom asmuch as a decade before the collapse. Grant's profitability, turnover and liquidity ratios

had trended downward over the 10 years preceding bankruptcy. But the most striking

characteristic of the company during that decade was that it generated no cash internally.

Although working capital provided by operations remained fairly stable through 1973,

this figure (which constitutes net income plus depreciation and is frequently referred to in

the financial press as "cash flow") can be a very poor indicator of a company's ability to

generate cash.

3- This paper describes an operational discriminate model for the identification of British

companies at risk of failure and discusses the results from its application since it was

developed and its degree of intertemporal validity. It raises a number of issues related tothe use of multivariate statistical techniques in the finance area and highlights some of

the methodological weaknesses in extant studies.

4- Financial statement analysis has traditionally been seen as part of the fundamental

analysis required for equity valuation. But the analysis has typically been ad hoc.

Drawing on recent research on accounting-based valuation, this paper outlines a financial

statement analysis for use in equity valuation. Standard profitability analysis is

incorporated, and extended, and is complemented with analysis of growth. An analysis of

operating activities is distinguished from the analysis of financing activities. The

perspective is one of forecasting payoffs to equities. So financial statement analysis is

presented as a matter of pro form a analysis of the future, with forecasted ratios viewed asbuilding blocks of forecasts of payoffs.

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Chapter 6

RATIO ANALYSIS:

Financial Analysis:

Financial analysis is the process of identifying the strength and weakness of the firm and

establishing relationship between the items of balance sheet and profit and loss account.

Financial ratio analysis is the calculation and comparison of ratio, which are derived from

the information in a companys financial statement. The level and historical trends of these ratio

can be used to make inference about a companys financial condition, its operation and

attractiveness as an investment. The information in the statement is used by

Trade creditors, to identify the firms ability to meet their claims i.e. liquidity position of

the company.

Investors, to know about the present and future profitability of the company and its

financial structure.

Management, in every aspect of the financial analysis. It is the responsibility of themanagement to maintain the sound financial condition in the company.

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Ratio Analysis

Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative)

factors of a company. The other side considers tangible and measurable factors

(quantitative). This means crunching and analyzing numbers from the financial statements. If

used in conjunction with other methods, quantitative analysis can produce excellent results.

Ratio analysis isn't just comparing different numbers from the balance sheet, income

statement, and cash flow statement. It's comparing the number against previous years, other

companies, the industry, or even the economy in general. Ratios look at the relationships

between individual values and relate them to how a company has performed in the past, andmight perform in the future.

MEANING OF RATIO:

A ratio is one figure express in terms of another figure. It is a mathematical yardstick that

measures the relationship two figures, which are related to each other and mutually

interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is

an expression relating one number to another. It is simply the quotient of two numbers. It can be

expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as so many

times. As accounting ratio is an expression relating two figures or accounts or two sets of

account heads or group contain in the financial statements.

MEANING OF RATIO ANALYSIS:

Ratio analysis is the method or process by which the relationship of items or group of

items in the financial statement are computed, determined and presented.

Ratio analysis is an attempt to derive quantitative measure or guides concerning the

financial health and profitability of business enterprises. Ratio analysis can be used both in trend

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and static analysis. There are several ratios at the disposal of an annalist but their group of ratio

he would prefer depends on the purpose and the objective of analysis.

While a detailed explanation of ratio analysis is beyond the scope of this section, we will focus

on a technique, which is easy to use. It can provide you with a valuable investment analysis tool.

This technique is called cross-sectional analysis. Cross-sectional analysis compares financial

ratios of several companies from the same industry. Ratio analysis can provide valuable

information about a company's financial health. A financial ratio measures a company's

performance in a specific area. For example, you could use a ratio of a company's debt to its

equity to measure a company's leverage. By comparing the leverage ratios of two companies,

you can determine which company uses greater debt in the conduct of its business. A company

whose leverage ratio is higher than a competitor's has more debt per equity. You can use this

information to make a judgment as to which company is a better investment risk.

However, you must be careful not to place too much importance on one ratio. You obtain a better

indication of the direction in which a company is moving when several ratios are taken as a

group.

OBJECTIVE OF RATIOS

Ratio is work out to analyze the following aspects of business organization-

A) Solvency-

1) Long term

2) Short term

3) Immediate

B) Stability

C) Profitability

D) Operational efficiency

E) Credit standing

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F) Structural analysis

G) Effective utilization of resources

H) Leverage or external financing

CLASSIFICATION OF RATIO

BASED ON FINANCIAL BASED ON FUNCTION BASED ON USER

STATEMENT

1] BALANCE SHEET 1] LIQUIDITY RATIO 1] RATIOS FOR

RATIO 2] LEVERAGE RATIO SHORT TERM

2] REVENUE 3] ACTIVITY RATIO CREDITORS

STATEMENT 4] PROFITABILITY 2] RATIO FOR

RATIO RATIO SHAREHOLDER

3] COMPOSITE 5] COVERAGE 3] RATIOS FOR

RATIO RATIO MANAGEMENT

4] RATIO FORLONG TERM CREDITOR

BASED ON FINANCIAL STATEMENT

Accounting ratios express the relationship between figures taken from financial

statements. Figures may be taken from Balance Sheet , P& P A/C, or both. One-way of

classification of ratios is based upon the sources from which are taken.

1] Balance sheet ratio:

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If the ratios are based on the figures of balance sheet, they are called Balance Sheet

Ratios. e. g. ratio of current assets to current liabilities or ratio of debt to equity. While

calculating these ratios, there is no need to refer to the Revenue statement. These ratios study the

relationship between the assets & the liabilities, of the concern. These ratio help to judge the

liquidity, solvency & capital structure of the concern. Balance sheet ratios are Current ratio,

Liquid ratio, and Proprietary ratio, Capital gearing ratio, Debt equity ratio, and Stock working

capital ratio.

2] Revenue ratio:

Ratio based on the figures from the revenue statement is called revenue statement ratios.These ratios study the relationship between the profitability & the sales of the concern. Revenue

ratios are Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit

ratio, Stock turnover ratio.

3] Composite ratio:

These ratios indicate the relationship between two items, of which one is found in the

balance sheet & other in revenue statement.

There are two types of composite ratios-

a) Some composite ratios study the relationship between the profits & the investments of the

concern. E.g. return on capital employed, return on proprietors fund, return on equity

capital etc.

b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend

payout ratios, & debt service ratios

BASED ON FUNCTION:

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Accounting ratios can also be classified according to their functions in to liquidity ratios,

leverage ratios, activity ratios, profitability ratios & turnover ratios.

1] Liquidity ratios:

It shows the relationship between the current assets & current liabilities of the concern

e.g. liquid ratios & current ratios.

2] Leverage ratios:

It shows the relationship between proprietors funds & debts used in financing the assets

of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietary ratios.

3] Activity ratios:

It shows relationship between the sales & the assets. It is also known as Turnover ratios

& productivity ratios e.g. stock turnover ratios, debtors turnover ratios.

4] Profitability ratios:

a) It shows the relationship between profits & sales e.g. operating ratios, gross profit ratios,

operating net profit ratios, expenses ratios

b) It shows the relationship between profit & investment e.g. return on investment, return on

equity capital.

5] Coverage ratios:

It shows the relationship between the profit on the one hand & the claims of the outsiders

to be paid out of such profit e.g. dividend payout ratios & debt service ratios.

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BASED ON USER:

1] Ratios for short-term creditors:

Current ratios, liquid ratios, stock working capital ratios

2] Ratios for the shareholders:

Return on proprietors fund, return on equity capital

3] Ratios for management:

Return on capital employed, turnover ratios, operating ratios, expenses ratios4] Ratios for long-term creditors:

Debt equity ratios, return on capital employed, proprietor ratios.

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LIQUIDITY RATIO: -

Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations.

The ratios, which indicate the liquidity of a company, are Current ratio, Quick/Acid-Test ratio,

and Cash ratio. These ratios are discussed below

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CURRENT RATIO

Meaning:

This ratio compares the current assets with the current liabilities. It is also known as working

capital ratio or solvency ratio. It is expressed in the form of pure ratio.

E.g. 2:1

Formula:

Current Ratio=Current AssetsCurrent laibility

The current assets of a firm represents those assets which can be, in the ordinary course of

business, converted into cash within a short period time, normally not exceeding one year. The

current liabilities defined as liabilities which are short term maturing obligations to be met, as

originally contemplated, within a year.

Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities (CL). Current

assets include cash and bank balances; inventory of raw materials, semi-finished and finished

goods; marketable securities; debtors (net of provision for bad and doubtful debts); bills

receivable; and prepaid expenses. Current liabilities consist of trade creditors, bills payable, bank

credit, and provision for taxation, dividends payable and outstanding expenses. This ratio

measures the liquidity of the current assets and the ability of a company to meet its short-term

debt obligation.

CR measures the ability of the company to meet its CL, i.e., CA gets converted into cash in the

operating cycle of the firm and provides the funds needed to pay for CL. The higher the current

ratio, the greater the short-term solvency. This compares assets, which will become liquid within

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approximately twelve months with liabilities, which will be due for payment in the same period

and is intended to indicate whether there are sufficient short-term assets to meet the short- term

liabilities. Recommended current ratio is 2: 1. Any ratio below indicates that the entity may face

liquidity problem but also Ratio over 2: 1 as above indicates over trading, that is the entity is

under utilizing its current assets.

LIQUID RATIO:

Meaning:

Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compares the quick assets

with the quick liabilities. It is expressed in the form of pure ratio. E.g. 1:1.

The term quick assets refer to current assets, which can be converted into, cash immediately or at

a short notice without diminution of value.

Formula:

Liquid Ratio=Quick AssetsCurrent Laibility

Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to those

current assets that can be converted into cash immediately without any value strength. QA

includes cash and bank balances, short-term marketable securities, and sundry debtors. Inventory

and prepaid expenses are excluded since these cannot be turned into cash as and when required.

QR indicates the extent to which a company can pay its current liabilities without relying on the

sale of inventory. This is a fairly stringent measure of liquidity because it is based on thosecurrent assets, which are highly liquid. Inventories are excluded from the numerator of this ratio

because they are deemed the least liquid component of current assets. Generally, a quick ratio of

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1:1 is considered good. One drawback of the quick ratio is that it ignores the timing of receipts

and payments.

CASH RATIO :

Meaning:

This is also called as super quick ratio. This ratio considers only the absolute liquidity available

with the firm.

Formula: Cash Ratio=Cash+Bank+Marketable securityCurrent

Laibility

Since cash and bank balances and short term marketable securities are the most liquid assets of a

firm, financial analysts look at the cash ratio. If the super liquid assets are too much in relation to

the current liabilities then it may affect the profitability of the firm.

Solvency Ratio

DEBT EQUITY RATIO:

MEANING:

This ratio compares the long-term debts with shareholders fund. The relationship between

borrowed funds & owners capital is a popular measure of the long term financial solvency of a

firm. This relationship is shown by debt equity ratio. Alternatively, this ratio indicates the

relative proportion of debt & equity in financing the assets of the firm. It is usually expressed as

a pure ratio. E.g. 2:1

Formula: Debt Equity Ratio=Long Term DebtShareholder's Fund

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Debt equity ratio is also called as leverage ratio. Leverage means the process of the increasing

the equity shareholders return through the use of debt. Leverage is also known as gearing or

trading on equity. Debt equity ratio shows the margin of safety for long-term creditors & the

balance between debt & equity.

Total Ass e ts to debt ratio:

This ratio establishes the relationship of long term funds with total assets. The objective of

computing this ratio is to determine the proportion of long term funds deployed in total assets.

There are two component of this ratio, which are as under:

Total Assets: They include fixed as well as current assets. However it does not include thefictitious assets.

Long term debts: Long term debts refer to debts that will mature after one year. It includes

debenture, bond, and loans from financial institutions.

This ratio is computed by dividing the total assets by long term debts. This ratio is generally

expressed as a pure ratio e.g. 5:3

Formula: Total assets to debts ratio=Total AssetsLong Term debt

This ratio measure to safety margin available to the provider of long term credit. It measures the

extent to which debt is covered by the assets. A higher ratio display higher security to lender for

extending long term loans to business. Low ratio represents a risky financial as it means that is

the business depends heavily on outside loans for existence.

PROPRIETORS RATIO:

Meaning:

Proprietary ratio is a test of financial & credit strength of the business. It relates shareholders

fund to total assets. This ratio determines the long term or ultimate solvency of the company.

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In other words, Proprietary ratio determines as to what extent the owners interest & expectations

are fulfilled from the total investment made in the business operation.

Proprietary ratio compares the proprietor fund with total liabilities. It is usually expressed in the

form of percentage. Total assets also know it as net worth.

Formula: Proprietors ratio=Proprietor'sfundsTotal assets

Activity Ratio:

DEBTORS TURNOVER RATIO (DTO)

Meaning:

DTO is calculated by dividing the net credit sales by average debtors outstanding during the

year. It measures the liquidity of a firm's debts. Net credit sales are the gross credit sales minus

returns, if any, from customers. Average debtors are the average of debtors at the beginning and

at the end of the year. This ratio shows how rapidly debts are collected.The higher the DTO,the

better it is for the organization.

Formula: DTR =Credit sale Average debtors

CREDITORS TURNOVER RATIO:

It is same as debtors turnover ratio. It shows the speed at which payments are made to the

supplier for purchase made from them. It is a relation between net credit purchase and average

creditors.

Formula: CTR =Net Credit purchase average creditors

Average account payable =Month in a year CTR

Both the ratios indicate promptness in payment of creditor purchases. Higher creditors turnover

ratio or a lower credit period enjoyed signifies that the creditors are being paid promptly. It

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enhances credit worthiness of the company. A very low ratio indicates that the company is not

taking full benefit of the credit period allowed by the creditors.

INVENTORY OR STOCK TURNOVER RATIO (ITR)

Meaning:

ITR refers to the number of times the inventory is sold and replaced during the accounting

period.

Formula: ITR =Cost of goods soldAverage inventory

ITR reflects the efficiency of inventory management. The higher the ratio, the more efficient is

the management of inventories, and vice versa. However, a high inventory turnover may also

result from a low level of inventory, which may lead to frequent stock outs and loss of sales and

customer goodwill. For calculating ITR, the average of inventories at the beginning and the end

of the year is taken. In general, averages may be used when a flow figure (in this case, cost of

goods sold) is related to a stock figure (inventories).

FIXED ASSETS TURNOVER (FAT)

The FAT ratio measures the net sales per rupee of investment in fixed assets.

Formula:

FAT=Net sale Net fixed assets

This ratio measures the efficiency with which fixed assets are employed. A high ratio indicates a

high degree of efficiency in asset utilization while a low ratio reflects an inefficient use of assets.

However, this ratio should be used with caution because when the fixed assets of a firm are old

and substantially depreciated, the fixed assets turnover ratio tends to be high (because the

denominator of the ratio is very low).

Profitability Ratio:

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GROSS PROFIT RATIO:-

Meaning:

This ratio measures the relationship between gross profit and sales. It is defined as the excess of

the net sales over cost of goods sold or excess of revenue over cost. This ratio shows the profit

that remains after the manufacturing costs have been met. It measures the efficiency of

production as well as pricing. This ratio helps to judge how efficient the concern is I managing

its production, purchase, selling & inventory, how good its control is over the direct cost, how

productive the concern , how much amount is left to meet other expenses & earn net profit.

Formula GPR =Gross profit Net sale*100

NET PROFIT RATIO:-

Meaning:

Net Profit ratio indicates the relationship between the net profit & the sales it is usually

expressed in the form of a percentage.

Formula: NPR =NPAT Net sale*100

This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as

a percentage of net sales. It measures the overall efficiency of production, administration, selling,

financing, pricing and tax management. Jointly considered, the gross and net profit margin ratios

provide an understanding of the cost and profit structure of a firm.

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INVESTMENT / SHAREHOLDER

EARNING PER SAHRE:-

Meaning:

Earnings per Share are calculated to find out overall profitability of the organization. Earnings

per Share representearning of the company whether or not dividends are declared. If there is

only one class of shares, the earning per share are determined by dividing net profit by the

number of equity shares.

EPS measures the profits available to the equity shareholders on each share held.

Formula: `EPS=NPAT For equity shareholderNo.of equity share

The higher EPS will attract more investors to acquire shares in the company as it indicates that the

business is more profitable enough to pay the dividends in time. But remember not all profit earned is

going to be distributed as dividends the company also retains some profits for the business.

DIVIDEND PER SHARE:-

Meaning:

DPS shows how much is paid as dividend to the shareholders on each share held.

Formula: `DPS=Dividend paid to ordinary shareholder No.of ordinary

share

RETURN ON INVESTMENTS:

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Return on share holders investment, popularly known as Return on investments (or) return on

share holders or proprietors funds is the relationship between net profit (after interest and tax)

and the proprietors funds.

Formula, `ROI=Net Profit(After interest and tax) Shareholder's Funds

The ratio is generally calculated as percentages by multiplying the above with 100.

Chapter 7

Data analysis and interpretation:

Liquidity Ratio:

Current Ratio: (Amount In Rupee)

Year Current Assets Current Liabilities Ratio

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2009 98161144.04 67918719.9 1.4:1

2010 142515291.61 87109222.77 1.6:1

2011 174378282.13 112860432.66 1.5:1

Interpretation:

As a rule, the current ratio with 2:1 (Or) more is considered as satisfactory position of the firm.

The current ratio of the firm measures the short term solvency. It indicate the rupees of current

available for each of current liabilities.

The above chart shows the upward trend from the financial year 2009 to 2010. This

is mainly increasing creditors from financial year 2009 to 2010. In the 2011 the current ratio is

decline. This is decline by decreasing the creditors in 2011. We can say in other word that

standard of current ration did not match to Appu International, so we can say that fulfilling the

requirement to liabilities is less than the standard. Then we can say this is satisfactory ratio but

they can improve this ratio up to standard level.

Quick Ratio:

Year Quick Assets Current Liabilities Ratio

2009 86827021.04 67918719.9 1.2:1

2010 120425291.61 87109222.77 1.3:1

2011 145272182.13 112860432.66 1.2:1

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Interpretation:

Generally, a quick ratio of 1to 1 is considered to represent a satisfactory current financial

condition. Although quick ratio is a more penetrating test of liquidity than the current ratio, yet it

should be used cautiously. Here it may not find any difficulty to meet its obligations because its

quick assets are 1.2, 1.3 and 1.2 times of current liabilities.

A quick ratio of 1 to 1 or more does not necessarily implies sound liquidity position. It

should be remembered that all debtors may not be liquid, and cash may be immediately needed

to pay operating expenses.

Cash Ratio:

Year Cash & bank +

Security

Current Liabilities Ratio

2009 11561853.32 67918719.9 0.17

2010 10658404.93 87109222.77 0.12

2011 6139350.98 112860432.66 0.05

Interpretation :

Since cash is the most liquid assets, a financial analyst may examine cash ratio and its equivalent

to current liabilities. For Appu International Company, cash ratios are as 0.17, 0.12 and 0.05 in

2009, 2010 and 2011 respectively. It clear that companys cash ratio is not maintained to the

standard level. Its current cash for paying for his liabilities is very poor. They can increase their

cash ratio by they can invest in marketable security and trade investment. By this investment

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they can increase their cash ratio because these are equivalent to cash, company can immediately

convert into cash.

Inventory Turnover Ratio:

Year COGS Avg. Inventory Ratio

2009 276777491.9 23534500 11.7 times

2010 375001625.8 22264000 16.8 times

2011 466641368.36 25607500.00 18.22 times

Interpretation:

The inventory turnover ratio shows how rapidly the inventory is turning into receivable in tocash through sale. Generally, a high inventory turnover is indicative of good inventory

management. A low inventory turnover implies excessive inventory levels than warranted by

production and sales activities, or slow moving or obsolete inventory. Here if we compare in

three years than we find that inventory turnover ratio are increasing year by year. We can say

that an Appu international have a good inventory management.

Appu International is turning its inventory of finished goods into sales in 2009 (at cost)

11.7 times in a year. In the other word, its holds average inventory of: 12 months/11.7 = 1.02

months, or 360 days/11.7 = 31 (30.76) days. Same as for 2010 and 2011 are 12 months/16.8 =

0.71 months and 360 days/ 16.8 = 21.42 days, 12months/ 18.22 = 0.65 months or 360 days/18.22 = 19.75 days.

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Debtors Turnover Ratio:

Year Annual Credit Sale Avg. A/C Receivable Ratio

2009 301571633.2 60824497.55 4.9 times

2010 402598342 136213962.6 2.9 times

2011 50057214.05 109017193.55 4.5 times

Interpretation:

From the above graph it is clear that in the various different year the Debtors turnover ratio is

also different and with the help of this ratio company can easily measure predictable receive

amount from the debtors.

Creditor Turnover Ratio:

Year Net Credit Purchase Avg. A/C Payable Ratio

2009 261083964.31 50931462.76 5.1 times

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2010 3794744979.12 59383417.415 3.8 times

2011 468375589.85 79277851.98 5.9 times

Interpretation:

So from the above graph we got different creditors turnover ratio indifferent years and this ratios

shows the company ability or level for the payment to its creditors.

Fixed Assets Turnover Ratio:

Year Net Sale Fixed Assets Ratio

2009 301571633.16 26551321.26 11.3times

2010 406059702.35 65711442.30 6.1times

2011 531193662.97 83401834.86 6.3times

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Interpretation:

From the above graph it is clear that fixed assets turnover ratio is 11.3 in the year 2008-09 and

then it decreases in the year 2009-10 and become 6.3 in this year and then it again decreases in

the 2010-11 and become 6.3.

As explained previously, the use of depreciated value of fixed assets in computing the

fixed assets turnover may render compression of firms performance over period or with other

firms meaningless. Therefore, gross fixed assets may be used to calculate the fixed assets

turnover for a meaningful comparison.

Current Assets Turnover Ratio:

Year Net Sales Total Current Assets Ratio

2009 301571633.16 98161144.04 3.07

2010 406059702.35 142515291.61 2.8

2011 531193662.97 174378282.13 3.04

Interpretation:

From the graph it is clear that total assets turnover ratio is 3.07 in the year 2008-09 than it

become 2.8 in the year 2009-10 and then it decreases and become 3.04 in the year 2010-11.

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Total Assets to Debt Ratio:

Year Total Assets Long term debt Ratio

2009 124712465.3 43696056.96 2.8

2010 208226733.91 93755934.91 2.2

2011 177799016.99 102915257.38 2.5

Interpretation:

From the above chart the debt asset ratio was consistently decreased from2.8 in FY 2008-09 to

2.2 in FY 2009-10 to 2.5 in F.Y. 2010-11. That means at beginning creditors of Appu

International bear the high risk than the other years.

Proprietary Ratio:

Year Proprietary Fund Total Assets Ratio

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2009 13097677.49 124712465.3 0.10

2010 27361565.83 208226732.9 0.13

2011 42004415.95 177799016.99 0.23

Interpretation:

If the proprietary ratio of the company is more than the payment capability of the company is

good and the creditors of the company are more secure and if the creditors of the company are

more secure than this condition is financially good for the company. From the above chart the

ratio was consistently increased in three years. The ratio was high in the FY 2010-11 i.e. 0.23%.

It indicates the company is quite solvent.

Gross Profit Ratio:

Year Gross Profit Net Sale Ratio

2009 22119003.85 301571633.16 7.33%

2010 31058076.52 412785000.3 7.52%

2011 39151644.08 505793012.44 7.74%

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Interpretation:

A high gross profit margin ratio is a sign of good management. A gross margin may increase due

to any of the following factors, (i) higher sales prices, cost of goods sold remaining constants, (ii)

lower cost of goods sold, sales prices remaining constant, (iii) a combination of variation in sales

prices and cost, the margin widening. Here the gross profit margin in appu international is

increasing year by year, so we can say that there are good management in appu international.

Net Profit Ratio:

Year Net profit Net sale Ratio

2009 4141889.26 301571633.16 1.37%

2010 4164359.48 412785000.3 1.01%

2011 6413077.94 505793012.44 1.20%

Interpretation:

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Net profit margin ratio establishes a relationship between net profit and sales and indicates

managements efficiency in manufacturing, administrating and selling the products. This ratio is

the overall measure of the firms ability to turn each rupee sales into net profit. If the net profitmargin is inadequate, the firms will fall to achieve satisfactory return on shareholders fund. In

Appu international the net profit ratio was decreasing year by year, s we can say that company

were not achieving his satisfactory return o shareholders funds.

Chapter 8

Finding:

1- The current ratio shows in fluctuating trends as 1.44 in the year 08-09, 1.6 in the year 09-

10 and 1.54 during the year 10-11 .This shows continuous increases in both current assets

and current liabilities.

2- The quick ratio is also in a fluctuating trend throughout the period 08 09 to 09-10 and

10-11 resulting as 1.2, 1.38 and 1.28. This shows the companys present liquidity

position is satisfactory.3- The cash ratio also shows increases fluctuating trend throughout the period 08-09 to 09-

10 and 10-11 resulting as 0.17, 0.12 and 0.05. This shows that industries can easily

change its current assets in to the liquidity form.

4- The gross profit ratio of the industry has been increased from 7.4% to 7.52% to 7.74%

from the year 08-09 to 09-10 to 10-11.

5- The net profit ratio is 1.38% in the year 08-09 than it decreases and become 1.01% in the

year 09-10 and then again increases and become 1.2% in the year 10-11.

6- The debtors turnover ratio is 3.09 in the year 08-09 then it decline and become 3 in the

year 09-10 and then it become 4.59 in the year 10-11.

7- The creditors turnover ratio is increases from 3.3 to 3.8 to 5.9 from the year 08-09 to09-10 to 10-11.

8- The inventory turnover ratio is 12 in the year 08-09 and then it increases and become17

in the year 09-10 and then it increases more and become 19 in the financial year 10-11.

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9- The fixed assets turnover is 11.25 in the year 08-09 and then it decline and become 6.12

in the year 09-10 and then again decline and become 6.06 in the financial year 10-11.

10-The proprietary turnover ratio is 0.105 which is increases for financial year 08-09 and 09-10 and then it increases and become 0.16 in the year 10-11.

11- The debt equity ratio shows a fluctuating trend it is 3.3 in the year 08-09 and then it

increases and become 3.45 in the year 09-10 and then again decline and become 2.45 in

the year 10-11.

Chapter 9

Suggestion And Conclusion

The CURRENT RATIO of APPU INTERNATIONAL was less than the standard in FY

2008-09 and 2009-10 i.e.1.8, 1.5 respectively. A low current ratio indicates that co will

not be able to meet its short term debts.

APPU INTERNATIONAL should look into its credit policies in order to ensure the

timely collection of imparted credit that is not earning interest for the firm.

There is decreasing trend in interest coverage ratio which is due to heavy investment

which further effect on the return on investment ratio. So APPU INTERNATIONAL

should keep up its investment unto sufficient level.

The APPU INTERNATIONAL should formulate the strategy to use the fixed assets more

effectively to generate more revenues.

Operating expenses should be especially considered to be reduced.

Inventory is the biggest item of balance sheet that must have demanded a large amount of

maintaining cost. So there is need for efficient Inventory Management.

There should be efficient utilization of share holder fund to increase return on investment

and return on equity to maintain its goodwill in investors mind.

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Conclusion:

Finance is the life blood of every business. Without effective financial management a

company cannot in this competitive world. A Prudent financial Manager has to measure

the working capital policy followed by the company.

The companys overall position is at a good position. Through the losses were there in

the FY 2009-2010, they were able to come out of it successfully and regain into

profitable scenario. Particularly the last three years position is well due to raise in the

profit level from the FY 2008 to FY 2011. It is better for the firm to diversify the funds to

different sectors in the present market scenario.

On a whole Appu International has once again demonstrated its potential to ride through

the difficult times. Despite the slowdown in its growth, it has determined to grab

numerous opportunities that are facing Indian bicycle industry.

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Higher demand for bicycle parts can be expected in the next decade, once investments in

ports and port development have started to reach fruition. As India is hopeful ofcompeting with other established shipbuilding nations, the multinationals are likely to

find complete bicycle opportunity in India, given the compliance requirements imposed

by effects of international legislation on Appu International.

Chapter 10

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1- Robert O. Edmister An Empirical Test of Financial Ratio Analysis for Small Business

Failure Prediction 19 Oct 2009 , Journal of Financial and Quantitative Analysis Vol.

7, issue- 02

http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=6318448

2- Financial analysis journal, Vol. 36 No. 04, Jul Aug. 1http://www.jstor.org/pss/4478363

3- R. J. Taffelar, Forecasting Company Failure in the UK Using Discriminant Analysis and

Financial Ratio Data Journal of the Royal Statistical Society. Series A (General), Vol.

145, No. 3 (1982), pp. 342-358

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http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=6318448http://www.jstor.org/pss/4478363http://www.jstor.org/pss/4478363http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=6318448


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http://www.jstor.org/stable/2981867

4- Doron Nissim and Stephen H. Penman, Ratio Analysis and Equity Valuation: FromResearch to Practice Business and Economics, Vol. 6, Number 1, 109-154

http://www.springerlink.com/content/h6860m543566p323/

I.M. Panday, Financial management Edition No. 09 Chapter 25 Financial Statements

Analysis Pg No. 517-542.
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Ratio analysis of Appu International Ludhiana